The Certainty of Uncertainty

Uncertainty continues to brew in the land of the qualified retirement plan, as plan advisors weigh their options and consider changing to a new business model — all thanks to the shifting timelines of the new fiduciary rule established by the Department of Labor over the last year.

But this uncertainty is not just for plan advisors. It exists for plan sponsors, recordkeepers, investment firms, politicians and even for the financial markets — all based upon what may or may not occur at the Department of Labor, the White House and the SEC.

Today, as advisors look to continuously improve and plan sponsors look to improve the benefits they offer, all must realize where our industry sits. Plan sponsors and plan participants are both stuck in an old paradigm, while retirement plan advisors at least have access to new research (even though they are not yet privy to it). In any event, a chasm separates the new research from those who need it.

Looking to the Futurists

In the field of artificial intelligence (AI), today there are thousands of people who call themselves “futurists.” Researchers cite four AI technologies that are poised to advance the extension of life:

  • Advanced robotics
  • Biotechnology
  • Genetics
  • Nanotechnology

Advancements in these technologies are concentrating on brain emulation – storing data outside of the human brain to back up the brain’s processing capacity. The next step will be to arrive at a point where the brain can be restored from the backup.

Knowing that this is where AI technology is heading, is it a stretch to assume that one day an investment house or a trustee might be able to offer plan participants the opportunity to incorporate artificial intelligence in the form of brain muscle memory? As a product overlay, could plan participants invest equities with the brainpower of Bill Miller or Peter Lynch? Or could plan participants invest fixed income using the brainpower of Bill Gross?

What We Know Today

In their book, Investor Behavior: The Psychology of Financial Planning and Investing, Lucia Fung and Robert Durand address the personality traits that place an investor in the bottom 30%, the top 30%, or somewhere in between. The authors conclude that by incorporating 41 questions, researchers can determine which of the “big five” personality traits (Extraversion, Agreeableness, Conscientiousness, Neuroticism and Openness to Expand/Openness to Intellect) an investor falls into. While there are five factors in total, two of them are dominant: Neuroticism and Extraversion.

The study identifies individuals scoring high in Neuroticism as being attracted to risk. They are drawn to risk due to the associated psychological distress, including depression, anxiety and anger. And they are impulsive and prone to making emotional financial decisions.


Read more commentary by Steff Chalk here


Individuals with higher Extraversion scores are identified as being normally social, talkative, enthusiastic and assertive. They normally take on more risk to fulfill a need for excitement. And they have a higher degree of risk tolerance. This can translate to higher returns, even after adjusting for risk.

Americans have heard for years that a good job, steady savings and a bit of luck can equate to stability and a comfortable retirement. Today, however, we’re learning that savings and a good job are not a birthright or even easily obtainable. For example, economists Jonathan Morduch and Rachael Schneider documented the financial lives and patterns of 235 low-and moderate income families in their book, U.S Financial Diaries: How American Families Cope in a World of Uncertainty. The book chronicles the experiences of families who are going through financial uncertainty and how they react.

Today, financial wellness is front-and-center for all companies. However, the biggest challenge facing employers is that those individuals who are in need of financial wellness will not take the time to seek it. This raises a question: What is the benefit of the best artificial intelligence in the land if those who need it refuse to use it?

Staff C. Chalk is the Executive Director of The Retirement Advisor University (TRAU), The Plan Sponsor University (TPSU) and 401kTV. This column first appeared in the latest issue of NAPA Net the Magazine.

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